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Religious institutions update: December 2014

Every year, religious institutions spend millions purchasing insurance of various types from insurance companies. Many will never make claims on the policies remotely equal to their annual investment in premiums. In these circumstances, religious institutions have reason to consider captive insurance in those jurisdictions where it is permitted. Captive insurance companies are insurance companies formed by the insured with the specific objective of insuring risks emanating from a parent company or group of companies. The advantages can be substantial; for example, after "endowing" the captive insurer, the parent no longer has to make annual "premium payments" unless the captive has an unexpected pay out period. Like ordinary insurers, captive insurers must convince regulators that their business is sound from an actuarial and financial perspective. Typically, captive insurance companies hire outside specialists to assist with this. They retain the underwriting profit and investment income, preserve control over how the religious institution pays losses and settles claims, can develop their own forms and rates based on the insured's experience, and, where necessary, may seek reinsurance to protect against remote risks. Captive insurers can tailor their products to exactly the payout history of your organization, whereas commercial insurers typically lump your risks into the risk profile of other organization. By retaining control over settling claims, captives are able to benefit directly from enhanced loss prevention programs and effective claims management. Not all types of insurance can be insured through captives; not all states authorize captives for every type of organization; and not all risk profiles or organizations can benefit from captives. Smaller organizations may want to join together to benefit from captives. Experienced and sophisticated management from at least outside vendors is important. But when the elements for captive insurance are satisfied, it is an excellent way to benefit from effective risk compliance programs and to steward donated resources. Holland & Knight can provide additional information about captive insurance companies if you are interested in learning more.

Court Dismisses Challenge to Parsonage Exemption

In Freedom from Religion Foundation, Inc. v. Lew, No. 14-1152, 2014 WL 5861632 (7th Cir. Nov. 13, 2014), the court ruled that a foundation and its co-presidents lack standing to challenge the constitutionality of the so-called parsonage exemption or section 107(2) of the Internal Revenue Code. The exemption excludes the value of employer-provided housing benefits from the gross income of any "minister of the gospel." The co-presidents receive a portion of their salaries from the foundation in the form of a housing allowance, but neither sought to exclude this income on their federal income tax returns and neither filed a claim for a refund after payment. The plaintiffs claimed standing because they were denied a benefit (a tax exemption) that is conditioned on religious affiliation; however, the court ruled that this argument fails "for a simple reason: the plaintiffs were never denied the parsonage exemption because they never asked for it. Without a request, there can be no denial. And absent any personal denial of a benefit, the plaintiffs' claim amounts to nothing more than a generalized grievance about §107(2)'s unconstitutionality, which does not support standing." The court vacated the judgment of the District Court and remanded with instructions to dismiss the complaint for lack of jurisdiction.

Sharing Public Instructional Materials with Religious Schools Is Constitutional

In Moses v. Skandera, No. 33,002, 2014 WL 5454834 (N.M. App. Oct. 27, 2014), the court ruled that the instructional material law (IML) providing for the purchase and distribution of nonsectarian instructional material to private schools is consistent with several state constitutional provisions in New Mexico. Article IX, section 14 prohibits the state from directly or indirectly lending or pledging "its credit or mak[ing] any donation to or in aid of any person, association or public or private corporation." Article XII, section 3 prohibits funds from being used in support of sectarian, denominational or private schools. Article IV, section 31 prohibits appropriations for educational purposes "to any person, corporation, association, institution, or community, not under the absolute control of the state." Article II, section 11 grants the freedom to worship God according to one's conscience and prohibits the support of any religious sect or denomination.

Funding for the IML comes primarily, if not exclusively, from the Mineral Leasing Land Act (MLLA), whereby one-half of the money that the federal government receives from the rental of public lands is paid to the state. The New Mexico Legislature annually appropriates from the MLLA to the instructional material fund. Interpreting Article VII, section 3, the court determined that the focus of the IML is to provide instructional material for the benefit of students, private schools do not own the instructional materials, the instructional materials are secular, and the state controls their use and disposition. The court also ruled that Article VII, section 3 should be interpreted in light of the U.S. Supreme Court's clear ruling that instructional material programs that benefit all children regardless of the school of their attendance does not conflict with the Establishment Clause.

Regarding Article IX, section 14, the court determined there is no "aid" to private schools because there is no public donation, gift or appropriation to them; rather, the schools are mere conduits. Furthermore, the court ruled that the intent of Article IX, section 14 is to avoid any lending of credit or commercial relationship, which is not at stake in the IML. Article IV, section 31 forbids appropriations for charitable institutions "not under the absolute control of the state," but plaintiffs failed to show that funds used to support IML are not within the state's control or that funds were appropriated to any private school. Article II, section 11 serves the purposes of the Establishment Clause, which is not offended by the IML. Therefore, the court affirmed the grant of summary judgment to the defendants.

In Priests for Life v. U.S. Dep't of Health and Human Servs., No. 13-5368, 13-5371, 14-5021, 2014 WL 4905732 (D.C. Cir. Nov. 14, 2014), the court rejected the plaintiffs' multiple constitutional challenges and the Religious Freedom Restoration Act (RFRA) challenge to the Patient Protection and Affordable Care Act's (ACA) implementing regulations that allow religious nonprofits to opt out of including contraception in the coverage they arrange for their employees and students. Pursuant to the opt-out, a religious organization that objects on religious grounds to including coverage for contraception in its health plan must complete a self-certification to this effect and inform the entity that issues or administers its group health plan or the Department of Human Services. The plaintiffs assert that the notice makes them conduits for providing contraceptive coverage to their employees and students because it "triggers" substitute coverage. The court rejected this theory on the grounds that it is actually federal law that is the trigger. Although acknowledging that the plaintiffs believe that the regulatory framework makes them complicit in the provision of contraception, the court ruled that it must independently determine what the regulatory provisions require and whether they impose a substantial burden on the plaintiffs' exercise of religion. The court found: "Religious objectors do not suffer substantial burdens under RFRA where the only harm to them is that they sincerely feel aggrieved by their inability to prevent what other people would do to fulfill regulatory objectives after they opt out." The plaintiffs are not entitled to a "religious veto against plan providers' compliance with those regulations." The actual burden upon the plaintiffs, in contrast, is "a de minimis administrative obligation." The government stipulated that to the extent a third-party administrator declines to assume the responsibility for providing contraceptive coverage, the regulations do not require the eligible organization to identify and contract with a new one; therefore, the court vacated the District Court's grant of summary judgment for Thomas Aquinas College. The court declined to apply strict scrutiny under RFRA and ruled, in any event, that the government has a compelling interest in providing contraception to women and that the ACA uses the least restrictive means to ensure contraceptive coverage while accommodating religious exercise.

Standing Questioned of For-Profit Company Unable to Find Insurance without Contraceptive Coverage

In Annex Med., Inc. v. Burwell, No. 13-1118, 2014 WL 4959142 (8th Cir. Oct. 6, 2014), the court vacated a District Court order prohibiting the government from enforcing the ACA's contraceptive coverage mandate against a for-profit company and its controlling shareholder Stuart Lind who asserted a religious objection. Lind stated that he was unaware until the ACA became effective that his Blue Cross plan offered contraceptive coverage. He canceled the policy and looked for alternatives but could find none even after the District Court issued a temporary injunction pending appeal. Annex asserts that the ACA is the reason, but the court ruled that this is sheer speculation: "The standing problem is the pleadings and record contain no indication any Minnesota health insurer is willing, but for the mandate, to sell a plan allowing a small employer such as Annex to prohibit coverage for a handful of healthcare products and services. What few indications appear on the record are to the contrary." The court observed that in protecting Lind's exercise of religion, RFRA cannot injure the rights of other private parties. The court dismissed the appeal and remanded the case for further proceedings relating to the parties' Article III standing. In dissent, Judge Colloton insisted that the plaintiffs have standing because it is obvious that the ACA is the reason they could not obtain insurance, whereas a permanent injunction would facilitate it.

Courts Decline to Rehabilitate Excommunicated Members or Interfere in Religious Governance

In Simons v. Lewis, No. C-92-11, 2014 WL 4916616 (N.J. Super. A.D. Oct. 2, 2014), the appellate court upheld dismissal of a senior pastor's complaint demanding that the court nullify his excommunication and termination from employment as senior pastor, order that he be restored to the congregation and to the ministry in the church, take actions to "promote the restoration [to plaintiff] of the affections and confidence of the Congregation," remove "all members of the Official and Internal Board of Trustees" of the church, and order defendants to pay him monetary damages. The trial judge concluded that the selection and retention of a clergy person is a "core, absolutely core ecclesiastical issue" and found that the court "could not adjudicate the qualifications of those persons ('ministers of the gospel') whom the by-laws required be involved in the termination decision." The appellate court agreed: "[W]e conclude that the First Amendment bars our courts from entangling themselves in this dispute between a church and its former minister. Finally, plaintiff's primary argument – that the Board members could not fire him due to his own unlawful conduct in appointing them – is barred by the doctrine of unclean hands."

The court in In re Ming Tung, No. 1157 2, 2014 WL 5856377 (N.Y.A.D. 1 Dept. Nov. 13, 2014), vacated a lower court's order invalidating a meeting of the China Buddhist Association and directing that another general meeting be held including excommunicated members. Respondents argued for this outcome on the grounds that the lower court interfered with religious matters by issuing its order because only members can attend and vote at meetings. By granting the petitioners the relief sought, the court "necessarily determin[ed] the validity of the excommunications, which is a purely ecclesiastical matter." The appellate court agreed that the application of "neutral principles of law" could not resolve the dispute. "Although a court may determine whether a religious organization has adhered to its membership requirements by examining corporate documents, such as the bylaws, here the bylaws are unhelpful because they are silent on that issue. Membership is solely conditioned on discipleship and it is unrefuted that Master Chen has always made that determination." The court also declined to adjudicate whether a lone monk was exercising excessive authoritarian control over the corporation as this puts the court "in the position of evaluating ecclesiastical doctrine, law, practices, procedures and rulings."

Mere Donor Lacks Standing to Challenge Church's Use of Funds

The court in In re Foundation for Anglican Christian Tradition, No. 2164 C.D. 2013, 2014 WL 5653304 (Pa.Cmwlth. Nov. 5, 2014), ruled that a donor of funds to a religious foundation lacked standing to seek declaratory and injunctive relief to enforce default provisions of a note obtained by the foundation after donated funds were used by the church to purchase real property. The plaintiff alleged that he donated funds to the foundation and assisted it in raising additional funds for the purpose of supporting Biblical and Anglican Christian principles at the church. The funds were used to purchase real property adjoining the church in exchange for a note and mortgage on the property. The plaintiff demanded that the note be amended to guarantee that the church would continue to follow the precepts of the foundation and the direction of the donor. The amendment provided that the church would be in default under the note and mortgage if a majority of the members of the church's vestry was removed and replaced. After this happened, the new vestry voted to declare the mortgage null and void, the foundation filed a satisfaction of mortgage without receiving any payment of principal and interest, and the church entered an agreement to sell the property with regard to which the plaintiff sought declaratory and injunctive relief. The court ruled that the plaintiff did not allege clear and unambiguous language or conduct indicating that he created a trust when he donated the funds and that his status as a mere donor "is insufficient to confer on him authority to enforce the board's option to declare a default" as he was neither a board member nor an officer of the foundation. Furthermore, his "belief in 'Biblical and traditional Anglican Christian principles' does not provide him with a specialized interest different from other members of the citizenry." Any conditions imposed by the amendment were not contemporaneous conditions of the gift. The court affirmed the trial court's order dismissing the plaintiff's petition with prejudice.

In Welch v. Brown, No. 2:12-2484 WBS KJN, 2014 WL 5781208 (E.D. Cal. Nov. 5, 2014), the court denied the plaintiffs' motion for preliminary injunction to enjoin enforcement of Senate Bill 1172, which prohibits mental health providers in California from engaging in sexual orientation change efforts (SOCE) with minors. Plaintiff Donald Welch is a licensed marriage and family therapist in California and an ordained minister. He disputes whether SB 1172 extends to a religious leader providing SOCE through his or her church when, like Welch, the religious leader is also a "mental health provider" under the statute. Defendants argue that SB 1172 would not restrict Welch from providing SOCE in his capacity as a counseling pastor, so long as he does not "hold himself out" as a licensed marriage and family therapist. Welch wishes to hold himself out as such, so the court ruled that he has standing to bring this Free Exercise and Establishment Clause Challenge. The court ruled the law constitutional anyway because it is neutral and generally applicable: "Similar to other neutral laws that have an effect on religious conduct, the evidence before the court indicates that SB 1172 'punishe[s] conduct for the harm it causes, not because the conduct is religiously motivated.'" The only way SB 1172 is under-inclusive is in its exclusion of SOCE performed by an individual who is not a "mental health provider" such as an unlicensed religious leader. The court ruled this is a constitutional accommodation for religion. The court ruled that SB 1172 does not violate the Establishment Clause because it is unlikely to require any examination of religious views and does not require state oversight of a church, its teachings or counseling. Last, the court ruled that the law passes rational basis review as rationally related to a legitimate government interest in protecting the well-being of minors.

Teacher States FMLA Claim, But Not ADA Claim Against Religious School

In Bernard v. EDS Noland Episcopal Day Sch., No. 2:13-cv-3284, 2014 WL 5342582 (W.D. La. Oct. 20, 2014), the plaintiff taught for the defendant for 14 years, then developed an eating disorder for which she requested time off for treatment. The court granted summary judgment as to the plaintiff's claims under the Americans with Disabilities Act (ADA) for being "regarded as" disabled, lacking a reasonable accommodation, and failure to provide notice and the plaintiff's breach of contract claim, but denied it as to the plaintiff's interference and failure to notify claim under the Family and Medical Leave Act (FMLA). The plaintiff lost her ADA claims because she failed to show that she could perform the essential functions of her job at the time of her termination. Her return-to-work release was revoked by her medical team and she was unable to say when she would be able to show that she could perform the essential functions of the job. An employer is not required to grant indefinite leave as a reasonable accommodation. Also, the plaintiff never asked for an accommodation and could not show that she is a qualified individual with a disability. But with respect to the plaintiff's FMLA claim, the court found there was a genuine dispute as to a material fact regarding whether the plaintiff provided adequate notice that she was planning to take qualifying leave under the FMLA. The court determined that the plaintiff was denied benefits under the FMLA; in particular, she was not offered her old position when she attempted to return to work. The plaintiff's contract with the school stated that she could be terminated for "just cause," meaning "[a]ny ... condition which materially impairs the continued usefulness or ability of the Teacher to perform the services required hereunder, as determined by the Head in her sole discretion." The court interpreted this to mean that the Reverend Kay had sole discretion to determine whether the plaintiff had a condition that materially impaired her continued usefulness and, thus, dismissed her breach of contract claim.